Will the Union Budget Enhance Capex, Services Sector Growth, and AI to Bolster FY27 Earnings?
Synopsis
Discover how the upcoming Union Budget may significantly impact capital expenditure, the services sector, and artificial intelligence to support earnings for FY27. Insights from Morgan Stanley highlight the balancing act between fiscal consolidation and economic growth, making this an essential read for investors and stakeholders alike.
Key Takeaways
Union Budget aims for 4.3% fiscal deficit Capex projected to grow by 11.5% Focus on manufacturing and services Nominal GDP growth expected at 10% Defence capex up by 18%
New Delhi, Feb 2 (NationPress) The anticipated increase in capital expenditure (capex), expansion in the services sector, and advancements in artificial intelligence within the Union Budget, combined with a slightly slower than expected pace of fiscal consolidation, are likely to bolster FY27 earnings. This conclusion comes from a report by Morgan Stanley, which highlights that heightened demand for equities via buybacks will further contribute to this positive outlook.
The Budget aims to strike a balance between reducing debt-to-GDP ratios and supporting growth through both cyclical and structural initiatives.
“Our outlook on Indian equities remains optimistic – we recommend an overweight position in Financials, Consumer Discretionary, and Industrials,” stated the global brokerage.
The fiscal plan aims for a fiscal deficit of 4.3% of GDP for FY27, aligning with a projected central government debt-to-GDP ratio of 55.6%.
The Budget promotes growth across three key areas: Firstly, a sustained focus on manufacturing through initiatives that build upon previous efforts, such as support for semiconductors (ISM 2.0), rare earth magnets, and legacy industrial clusters.
“The Budget enhances the services sector through measures like increased safe harbour thresholds, a tax exemption for data centres, and a goal of achieving a 10% share of global exports by 2047; along with a renewed emphasis on capex, which is projected to rise by 11.5% year-on-year, with defence capex increasing by 18%,” the note added.
While maintaining a path towards fiscal consolidation, it does so at the slowest rate since the pandemic.
“We anticipate that the Budget will foster cyclical growth recovery through its focus on capex (with central government capex remaining at 3.1% of GDP in FY27, similar to FY26 RE) and will enhance India’s structural growth trajectory through measures aimed at improving manufacturing competitiveness and the attractiveness of the services sector,” the global brokerage concluded.
We believe the fiscal parameters are realistic, factoring in a nominal GDP growth of 10% for FY27 and an 11.4% growth in direct tax revenues.
Point of View
It's crucial to recognize that the upcoming Union Budget reflects a deliberate attempt to balance economic growth and fiscal responsibility. The emphasis on capital expenditure and services is promising, and we remain committed to presenting an unbiased overview that highlights the potential benefits for all stakeholders in the nation.
NationPress
6 Jul 2026
Frequently Asked Questions
What is the expected fiscal deficit for FY27?
The expected fiscal deficit for FY27 is 4.3% of GDP , aiming to balance growth and debt reduction.
How much is capital expenditure projected to increase?
Capital expenditure is projected to rise by 11.5% year-on-year , with a significant increase in defence spending.
What sectors are expected to benefit from the Budget?
Financials, Consumer Discretionary, and Industrials are anticipated to benefit the most from the proposed measures.
What are the long-term goals for the services sector?
The services sector aims to achieve a 10% share of global exports by 2047 , supported by various initiatives.
What is the expected nominal GDP growth for FY27?
The nominal GDP growth is expected to be around 10% for FY27, reflecting a positive economic outlook.
